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Industry Guide:

Hire Purchase and Credit Sale

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1. I am a car dealer and I sell cars through HP agreements. Do I need to be registered under GST? 

As a car dealer, you are making a taxable supply when you sell cars to customers. Hence, you are required to be registered under GST if your annual taxable turnover from the sale of cars has exceeded the threshold of RM500,000. 

Entitlement to Input Tax 

2. I understand that input tax on passenger cars is excluded from any input tax credit. If I am a car dealer, can I claim input tax on such cars which I supply to a hirer under a hire purchase agreement?

You are entitled to claim GST incurred on that purchase. 

Tax Invoice

3. As a dealer must I issue a tax invoice on for the deposit payments made by the hirer? 

A tax invoice must be issued for the deposit payments by you to the hirer if you are a registered person. 

4. As a FI, must I issue a tax invoice on the installment payments I charge to the hirer under HP financing?

Tax invoices may be issued for the installment payments related to HP financing by the FI (registered person) even though it is an exempt supply where no tax is chargeable. However, the FI may also replace such invoices with a normal invoice without the particulars required for a tax invoice. 

Sale to a Foreigner

5. Should I impose GST on a HP agreement to purchase a car if the hirer is a foreigner?

You are required to charge GST at a standard rate to the foreigner. 

Sale by HP in a Free Industrial Zone / Free Commercial Zone

6. What is GST implication on a sale using HP financing to customers inside free industrial zone or free commercial zone?

You are required to charge GST on the supply at a standard rate. 

Early Settlement 

7. What is the GST treatment when the hirer makes an early settlement of the HP agreement?

There is no GST implication when there is an early settlement by the hirer as financing is an exempt supply

8. When a hirer settles a balance outstanding under a HP agreement, he is entitled to a rebate by the company financing the goods. Is this rebate subject to GST?

No, the rebate is not subject to GST as the rebate is calculated from the interest element which is an exempt supply. 

Repossessed Asset 

9. What is the GST treatment when the FI repossess the asset and subsequently returns the asset to the hirer? 

If the asset is repossessed by the FI, there is no supply of goods made by the hirer to the FI. Similarly, if the FI repossess and subsequently returns the asset of the hirer, there is no supply of assets made by the FI to the hirer. The FI is merely recovering the debts owed and the asset is the security for the debts owed. 

10. I am a second hand car dealer and will be selling used cars on HP agreement. Is there any tax relief on my sales and how do I account for GST on such sales?

Used motor vehicles are given tax relief when sold by you in the form of a reduced tax charged whereby the tax is charged on the margin of sale i.e. by deducting the resale value of the vehicle from the purchase value.

Example 1: 

Purchase price of used car A by secondhand car dealer RM 30,000.00
Subsequent sale price of car A by secondhand car dealer  RM 44,300.00
Margin / Excess RM 14,300.00
GST chargeable (6%)  RM 809.43

Hence, even though the sale of Car A is made through a hire purchase agreement, the GST chargeable (RM809.43) has to be account by the dealer following the normal time of supply rules. If car A is sold by a vehicle manufacturer, he may also enjoy a similar relief if given prior approval by the Director General. Further details about the scheme may be obtained from the GST Guide on Relief for Second-hand Goods. 

Transitional Issues 

11. Is a dealer allowed to claim sales tax that he had paid on the purchase of an asset which he subsequently sold on HP terms before the implementation of GST?

No, he cannot claim the sales tax paid on the asset as he does not hold the asset on the date of implementation of GST. 

12. My HP agreement is a non-reviewable agreement and it spans over the GST implementation date. Do I need to account for GST on the credit installments payments I make after GST is implemented?

No, as the supply of goods was made before the implementation of GST. 

13. I purchased a bus to be used as a tour bus under a HP agreement with a FI before the implementation of GST. Can I claim a special refund on this bus?

You may not be eligible to claim a special refund if the bus has been capitalised under accepted accounting principles.

14. I supply cars to car dealers whom I had invoiced before the implementation of GST and the cars are made available to them. However, the car dealers choose not to collect the cars until there is a sale and delivery to their client. If they pick up the cars after the implementation of GST, are the cars subject to GST?

No, as the supply of goods was made available before the implementation of GST. 


15. Is the HP ownership claim of RM50 subject to GST? 

No, as it is a regulatory requirement under the Road Transport Act 1987.

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Tel +607-859 0410
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Tel +604-377 7075
Fax +604-619 2699

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